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The Fix is In: Why Gold Price Manipulation is Now a Global Effort

A lot of people think about gold as a percentage of total reserves. So countries have reserves. What percentage of your reserves consist of gold? For example, a lot of people are surprised to learn that the United States has 70 percent of its reserves in gold. China has about 1 percent of its reserves in gold. So people look at that and think that’s the imbalance. But that’s not a very meaningful figure in my view.

The reason is that the reserves are a mixture of gold and hard currencies, and the currencies can be in bonds and other assets. The United States doesn’t need other currencies. We print dollars, so why would we have a bunch of euros and yen? We don’t really need them, so it makes sense that the U.S. would have gold as a very large percentage of its reserves because we don’t need all these other currencies. China has greater need for them.

But, to me, a better metric, a better way of thinking about how much gold a country has is to look at gold as a percentage of GDP. Your GDP’s your economy — How big is your economy? That’s just the gross value of all the goods and services.

Well, if it’s a money economy, and you say that gold is the real underpinning, gold is the real money, I call it M-sub-0. You know, we have M3, M2, M1, M0. I call gold M-sub-0. It’s the real hidden underpinning of the global economy.

Gold never went away. It was officially demonetized by the IMF in 1975. The U.S. ended the convertibility of gold in 1971. So gold disappeared officially in stages in the mid-1970s. But the gold never went away.

The US has about 8,000 tons. We haven’t sold a significant amount of gold since 1980. We dumped a lot of gold in the late ’70s to suppress the price, but none after that. We’ve held onto the gold. So one of my questions for central bankers is, if it’s such a ridiculous thing to have, why are we hanging onto it? But that’s a separate question.

So the point is, China does not have enough gold to have a seat at the table right now. Think of it as a game of Texas Hold’em. What do want in a poker game? You want a big pile of chips. Gold are gonna be your chips. It doesn’t mean that you automatically have a gold standard, but the gold that you have will kind of give you your voice at the table.

For example, Russia has one-eighth the gold of the United States. It sounds like they’re a small gold power, but their economy’s only one-eighth as big. So they have about the right amount of gold. The U.S. gold reserve at the market is about 2.7 percent of GDP. That number varies because the price of gold varies, but it’s about 2.7 percent. For Russia, it’s about 2.7 percent. But Europe, it’s even higher. It’s over 4 percent. That’s one of the reasons I’ve been very bullish on the euro and continue to be.

China, that number’s 0.7 percent officially. Unofficially, if you give them credit for having, let’s say, 4,000 tons, it gets it up to the US-Russia level, but they want to actually get higher than that because their economy is growing.

So here’s the problem: If you took the lid off and ended the gold price manipulation and let gold find its level, China would be left in the dust. It wouldn’t have enough gold relative to the other countries, and because their economy’s growing faster and because the price of gold would be skyrocketing, they could never acquire it fast enough. They could never catch up. All the other countries would be on the bus. The Chinese would be off the bus.

So, when you have this reset, and when everyone sits down around the table, China’s the second largest economy in the world. They have to be on the bus. So the global effort is to keep the lid on the price through manipulation, which is very obvious. I tell people, if I were running the manipulation, I’d be embarrassed because it’s so obvious at this point.

So the price is being suppressed until China gets the gold that they need. Once China gets the right amount of gold, then you can take the cap off. If it doesn’t matter where gold is because all the countries will be in the same boat. But, right now, they’re not, so Chinese has this catch-up.

There is statistical evidence piling up for this. There’s statistical evidence, anecdotal evidence, forensic evidence. The evidence is very clear. I’ve spoken to members of Congress. I’ve spoken to people in the intelligence community, in the defense community, very senior people at the IMF. It’s all in the book. The footnotes are there. You can look up the names and get the evidence, and I wouldn’t have written a book like this without the 300 footnotes because I don’t believe in making strong claims without strong evidence, but the evidence is all there.

Regards,

Jim Rickards
for The Daily Reckoning

P.S. So, what does the U.S. get out of this little agreement? I’ll cover that, and more, next time. Stay tuned…

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About James Rickards:

James G. Rickards is the editor of Strategic Intelligence, the latest newsletter from Agora Financial. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He was the principal negotiator of the rescue of Long-Term Capital Management L.P. (LTCM) by the U.S Federal Reserve in 1998. His clients include institutional investors and government directorates.

His work is regularly featured in the Financial Times, Evening Standard, New York Times, The Telegraph, and Washington Post, and he is frequently a guest on BBC, RTE Irish National Radio, CNN, NPR, CSPAN, CNBC, Bloomberg, Fox, and The Wall Street Journal. He was contributed as an advisor on capital markets to the U.S. intelligence community, and at the Office of the Secretary of Defense in the Pentagon.

Rickards is the author of The New Case for Gold (April 2016), and three New York Times best sellers, The Death of Money (2014), Currency Wars (2011), The Road to Ruin (2016) from Penguin Random House.